With Smaller Providers, Software and Services Can be Hard to Mix (Part 1)

Back in the reverse auction heyday between 1999 and 2001, I spent countless hours helping FreeMarkets evangelize its position that companies should avoid buying either software or consulting to do sourcing, but rather a combination of both -- a solution. Our primary argument was that the sourcing process was inherently too complicated and difficult to manage for companies wanting to maximize savings through engaging a broader (often global) supply base and to create a level playing field which would enable all suppliers to feel like they had a shot at winning the award decision (little did they know the incumbent usually kept the business). In the end, we capitulated to building software in addition to delivering integrated solutions and ended up developing a me-too (actually, it was not even a me-too product for a while, as our initial QuickSource releases lacked many capabilities relative to the competition) stand-alone software product -- SaaS, to be specific. And the services/solutions business began a gradual -- and not always steady -- slide that it would never fully recover from, as companies increasingly brought in the pure-play consultants once again and opted for stand alone software over hybrid solutions.

There are many parallels -- on a much smaller scale -- with CombineNet in recent years, not withstanding the obvious geographic relationship of the two providers (located a mile apart). For a number of years, CombineNet was a hot-to-trot sourcing optimization expert with one of the best -- if not the best -- transportation sourcing solutions in the market (it is still top tier). Delivered largely through services, but with software enabled data acquisition and analysis capabilities, CombineNet's offering was a hybrid of both team and application expertise. But like FreeMarkets, they began to see that certain segments of the market wanted to attempt to bring the services component in-house. So instead of sticking to their solutions/services delivery core, CombineNet decided to take a development and strategy detour and pursue a bifurcated -- versus hybrid -- business model, very much like FreeMarkets did, albeit on a smaller scale.

Judging by objective shareholder criteria, the result of this effort did not amount to what it could have (like FreeMarkets in the end, I might add), even though one could argue that from a customer perspective that CombineNet has been quite successful when it comes to actual value delivered. I believe that CombineNet followed the path of getting pulled in a software direction when they should have spent time figuring out a more efficient services-delivery mechanism (or pursued software as the new firm focus at the future exclusion or migration away from services). The lessons from FreeMarkets were clear (i.e., the danger of moving in two directions at once and losing focus), yet the pull to pursue both strategies can all too often prove too challenging to go against in these situations, even given their neighbor's mistakes.

What are the lessons in this for customers considering leveraging services and software from smaller providers (not to mention optimization technology and optimization solutions partners)? Stay tuned for the continuation of this analysis. I am also looking forward on reporting back from my visit to CombineNet in a couple of weeks.